Build a New Subprime Department Ground Up: Part 1

The DealerStrong Team Chronicles the Steps to Build a New Subprime Department.

First in a six part series of articles. While the names and locations are being changed to protect the company’s privacy, this is the first of six articles that document the process being used to develop a startup Subprime department inside an already successful independent dealer, located on the fringe of one of the major metro markets in the United States. It will detail the plan, the strategies, the successes and the challenges encountered over a six month period, with the end goal of the new department to reach a monthly sales volume of 70 deals at over $230,000 total gross by the end of that period.

New clients always mean new challenges, some more exciting than others. It was certainly more exciting when Aaron Matthews and Clay Rodgers, partners at Champion Motors, an independent dealership already retailing an averaging 100+ pre-owned vehicles per month, reached out. They wanted my team and I at DealerStrong to help them build a Subprime department. They were experts at marketing (digitally) and selling to prime credit customers, but like anyone selling used vehicles, they realized many of their customers had blemished credit and wanted to better serve them.

Matthews and Rodgers realized they had neither background nor experience in subprime, so rather than try to pay the tuition of developing that channel through trial and error; they turned to the experts to speed that timeline up. Since it had been many years since I personally had the opportunity to build a solely Special Finance department from a clean sheet of paper, I jumped at the chance. (Usually our Special Finance efforts are combined with developing the entire operations of a dealership.)

This article will focus on the planning and make ready period: the thirty day period prior to launching the Subprime Department.

It was a tough phase as Matthews and Rodgers saw the potential and wanted to go from zero to wide open overnight. To me, this was the most important phase as it involved building the foundation for the “machine.” I believe in building the machine, adding fuel to make it go, continuing to increase the fuel until the machine maxes out and needs to be grown again. In this situation, to get to the end goal, there would be three phases of growth.

Timeline: To be accomplished in the first 30 days

With no existing subprime department, DealerStrong helped Champion Motors accomplish a number of tasks in the first thirty days prior to launch. They covered:

To commence Special Finance, we needed a skilled manager with sound integrity. We also needed a subprime department with a minimum of two sales people. Within the first month of operation, we launched a BDC initially focused on Special Finance. The BDC was staffed with three BDRs.

To expedite the hiring, we placed ads on Indeed.com using our own DealerStrong web site and our social media sites. We used LinkedIn to make our network aware of the openings. Finally, we reached out to key industry partners that have ties to the city to try to find managers with the skill sets and character needed.

Resumes came in quickly. We used a generic and compliant employee application, which we forwarded to the respondents with resumes that were worthy. Once the applications were returned, the screening process began. Employment tests were provided to determine if skills sets and claimed skills were equal. From there, interviews were scheduled and eventually reduced to a handful to be interviewed by Rodgers and Matthews. It was a scripted process that eliminated the riff-raft from the hirable few. We planned for our staff to be ready for the on-boarding and job training by Day 1.

Customer Demographics and Finance Companies

In the pre-engagement homework, Rodgers and Matthews quickly and thoroughly reviewed the credit bureau pulls from the prior 30 days breaking them first into prime and subprime tiers. This was when they discovered that 52% of the credit pulls were for customers with subprime credit. Additionally, a significant percentage fell into the category of zero score to a 510 credit score.

Our goal was to match the customers with subprime credit to a portfolio of finance companies or banks that would cover the entire credit spectrum. Fortunately, Champion already had signed relationships with Ally Finance, Capital One Auto Finance, Chase Bank and Wells Fargo. That was a good base. To that, we created a list of 15 additional auto finance companies and credit unions needed to cover the entire spectrum of credit, with instructions to Matthews and Rodgers to get them signed by the end of the 30 day period.

Inventory

I believe inventory is the key to the success of a Subprime department. It must not only be behind book, on the lot, and ready to go, but it also must fit the banks/finance companies’ parameters that will be used for each particular customer. Our goal was simple. Inventory a supply on the ground equal to a one-month’s supply of forecasted Special Finance sales, and do it so that the unit count was essentially divided among the credit tiers.

The great thing in Champion’s case was we were essentially starting from a blank sheet of paper. They currently stocked about 150 – 170 units for their prime business. A quick analysis of their inventory indicated about 10% of their inventory would work well for our Subprime department customers. That meant there was no dire need to rush out and buy a lot of inventory, but rather work our way into a perfect supply.

Shawn Foster, DealerStrong’s inventory specialist, was involved in the planning phase. We worked with Matthews, who was responsible for inventory, and his buyers to set out parameters to buy from. Additionally, we established reconditioning standards for their service department to work from. The immediate expectation was that, beginning with mid-month of the planning phase to the middle of the following month, 15 units would have to be acquired and made ready for sale.

BDC and Technology

At onset, the sales staff, which numbered only five, answered all the incoming calls and made all the outbound calls for the 700 total opportunities the dealership currently had to do business. Recognizing the team had no subprime experience and no additional capacity to handle more leads, we knew they would not be utilized. Additionally, being in a major metro market, once marketing was added to the mix, the lead count each month could literally reach the “thousands.” As a result, the decision was made to build a BDC immediately and, by the middle of the first active month, have it both fielding incoming calls as well as making all outbound Special Finance calls.

The CRM system being used by Champion really wasn’t well suited for a BDC or their service department. The decision was made to install ProMax Unlimited and move the entire operation to it – prime, subprime and service. With the dealership poised to have over 200 used vehicles in inventory, ranging all the way from a nearly new Audi R8 Quattro to deep subprime vehicles, the outstanding desking features in ProMax would allow the subprime team to be able to glean opportunities out of higher-end inventory that would normally not be expected to work well.

With ProMax to handle call and lead management, we added Bidzpin to help the buyers identify and bid the inventory to match the finance companies. Technology would help us keep us ahead of the game with inventory, from sourcing to structuring.

We began the BDC with three BDRs. Wendy Reeves, the DealerStrong BDC expert and trainer worked with the BDRs to essentially take a newbie crew and turn them into a strong foundation. Not only did Reeves work through the processes and the call guides, but with ProMax on board, was able to install our entire template contact and follow-up system (email and text). This proved important in increasing the contact-to-lead ratios and the shows-to-appointment ratios. She anticipated a mid-first month time-line for the BDC to be ready to go live and expected them quickly to hit benchmark productivity.

Facilities

Next was getting the facilities ready for the new team and BDC. The dealership was a former second tier franchise store. It has been very tastefully reappointed to handle the upscale prime business. What it didn’t have was sufficient space ready to add the additional Subprime department personnel. Rodgers and Matthews quickly went to work to convert a nice-sized storage area adjacent to the showroom to house the customer waiting area for both sales and service. This allowed the former customer waiting area to be converted into office and cubicle space for the new Special Finance team.

It was decided that a small office building immediately adjacent to the dealership, also owned by Champion, would be converted to handle the BDC. It was large enough to accommodate up to eight BDRs along with a manager, so we thought it would work well. The month lead time gave us the ability to get it outfitted and wired to handle a VOIP phone system.

And so went the first month of planning and make ready. It certainly was an active time, but it provided the ability to build a solid foundation. Next month we will discuss the results as we go live. Without a doubt, as in any organization, there will be hiccups and obstacles that are encountered that will have to be worked through, but we feel extremely optimistic and have nothing less than absolute expectations that our initial goals will be met!

Greg Goebel is the President and CEO of DealerStrong, author of The Complete Guide to Special Finance, and previous CEO of Auto Dealer Monthly magazine. Greg has extensive experience in the subprime sector. His dealerships first began utilizing Special Finance in 1990 and delivered over 11,000 subprime deals.